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    KAI
    Earnings call· Jun 2026(Q2 FY26)

    KADANT Q2 FY26 earnings call KAI

    Aug 5, 2026 Source

    Executive summary

    Kadant Q2 FY26 — Record Revenue and Adjusted EBITDA Driven by Acquisitions and Aftermarket Strength

    Kadant delivered strong second-quarter results, achieving record revenue and adjusted EBITDA, primarily driven by recent acquisitions and robust aftermarket demand. Despite ongoing softness in global capital equipment markets and geopolitical uncertainties causing project delays, the company's diversified business model and operational discipline supported profitability. Management anticipates a strengthening in capital spending trends in the second half of the year.

    Highlights

    5

    • Bookings increased 16% to $312 million in Q2 FY26.

    • Revenue increased 23% to a record $313 million, with organic revenue up 8% in Q2 FY26.

    • Adjusted EBITDA was a record $68 million, up 30% from the prior year period.

    • Adjusted EPS was a record $3.42, up 26% compared to Q2 FY25, exceeding guidance by $0.44.

    • Operating cash flow increased 32% to $54 million in Q2 FY26.

    Concerns

    4

    • Gross margin decreased 210 basis points to 43.8% in Q2 FY26 due to higher capital mix and product mix.

    • Customer approval cycles and project releases are delayed due to geopolitical uncertainty.

    • Softness in global capital equipment markets continues, though expected to strengthen in H2 FY26.

    • Deferred profit recognition from the Kadant Profeel acquisition negatively impacted gross margin, expected to take the remainder of FY26 to resolve.

    Guidance & targets

    10
    CategoryTargetConfidence
    Full-year FY26 Revenue
    $1.19 billion to $1.21 billion
    high materiality
    High
    Full-year FY26 Adjusted EPS
    $12.43 to $12.68
    high materiality
    High
    Q3 FY26 Revenue
    $297 million to $307 million
    medium materiality
    High
    Q3 FY26 Adjusted EPS
    $2.90 to $3.00
    medium materiality
    High
    Q3 FY26 Gross Margins
    44% to 44.5%
    low materiality
    Medium
    Q3 FY26 SG&A as percentage of revenue
    27.2% to 27.7%
    low materiality
    Medium
    Q3 FY26 Net Interest Expense
    $19.5 million to $20 million
    low materiality
    Medium
    Q3 FY26 Tax Rate
    27.8% to 28.3%
    low materiality
    Medium
    Q3 FY26 Depreciation Expense
    $28 million to $28.5 million
    low materiality
    Medium
    Q3 FY26 Intangible Amortization Expense
    approximately $34 million
    low materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Flow Control
    Delivered a solid quarter despite an extremely challenging European economic environment, benefiting from strong aftermarket demand and stronger-than-expected capital project bookings in North America. Expects demand to remain consistent as the year progresses.
    Bookings: up 11% compared to prior yearAftermarket revenue: $76 millionAftermarket revenue as % of total: 76%
    		$100 million5%—27.7% Adjusted EBITDA margin
    Industrial Processing
    Delivered excellent quarterly results, with strong contributions from both aftermarket parts and capital equipment shipments, led by recent acquisitions. Operational leverage from acquisitions contributed to improved margin performance. Expects aftermarket demand to remain stable and capital business softness to be timing-driven.
    New orders: $136 millionNew orders growth: up 29% compared to prior yearOrganic growth: 13%
    		$144 million——26.1% Adjusted EBITDA margin ($38 million Adjusted EBITDA)
    Material Handling
    Good performance with robust demand for high-performance biller product line. Aftermarket parts and service performed well. Capital equipment demand expected to recover in 2027, with several larger capital projects under discussion. Markets are stable.
    Bookings: $73 millionAdjusted EBITDA growth: 7%
    		———$15 million Adjusted EBITDA

    Operational metrics

    29
    Organic Revenue Growth
    8%
    Q2 FY26

    Company-wide organic revenue growth.

    Organic Capital Revenue Growth
    23%
    Q2 FY26

    Company-wide organic capital revenue growth.

    Aftermarket Parts Revenue
    $214.2 million
    Q2 FY26

    Company-wide record aftermarket parts revenue.

    Aftermarket Parts Revenue as % of Total Revenue
    68%vs 71% in Q2 FY25
    Q2 FY26

    Mix of higher-margin aftermarket parts revenue decreased.

    Adjusted EBITDA
    $68.1 millionup 30%
    Q2 FY26

    Record adjusted EBITDA due to strong performance at Industrial Processing segment.

    Adjusted EBITDA Margin
    21.8%vs 20.5% in Q2 FY25
    Q2 FY26

    Adjusted EBITDA as a percentage of revenue.

    Adjusted EPS
    $3.42up 26%
    Q2 FY26

    Record adjusted EPS driven by higher organic revenue and stronger acquisition performance.

    Capital Expenditures
    $10.9 millioncompared to $4 million in prior period
    Q2 FY26

    Increased capital expenditures.

    GAAP EPS
    $2.75increased 24%
    Q2 FY26

    GAAP diluted earnings per share.

    SG&A as % of Revenue
    26.1%compared to 29% in Q2 FY25
    Q2 FY26

    SG&A expenses were well managed.

    SG&A Expenses
    $81 millionincreased $7.7 million or 10% compared to $73.9 million in Q2 FY25
    Q2 FY26

    Total SG&A expenses.

    Cash Conversion Days
    133decreased to 133 at the end of Q2 FY26 compared to 147 at the end of Q1 FY26
    Q2 FY26

    Liquidity metric.

    Working Capital as % of Revenue
    19.3%compared to 17.7% in Q2 FY25
    Q2 FY26

    Working capital as a percentage of revenue.

    Net Debt
    $373 millionincreasing $129 million sequentially
    Q2 FY26

    Net debt (debt less cash).

    Leverage Ratio (credit agreement)
    1.72compared to 1.27 last quarter
    Q2 FY26

    Leverage ratio calculated in accordance with credit agreement.

    Borrowing Capacity (revolving credit facility)
    $249 million
    Q2 FY26

    Available borrowing capacity.

    Uncommitted Borrowing Capacity
    $200 million
    Q2 FY26

    Additional uncommitted borrowing capacity.

    EPS Increase from Higher Revenue
    $0.67
    Q2 FY26

    Contribution to adjusted EPS increase.

    EPS Increase from Acquisitions (excl. borrowing costs)
    $0.52
    Q2 FY26

    Contribution to adjusted EPS increase.

    EPS Increase from Lower Noncontrolling Interest Expense
    $0.01
    Q2 FY26

    Contribution to adjusted EPS increase.

    EPS Decrease from Lower Gross Margin Percentage
    $0.23
    Q2 FY26

    Offset to adjusted EPS increase.

    EPS Decrease from Higher Interest Expense
    $0.12
    Q2 FY26

    Offset to adjusted EPS increase.

    EPS Decrease from Higher Effective Tax Rate
    $0.08
    Q2 FY26

    Offset to adjusted EPS increase.

    EPS Decrease from Higher Operating Expenses
    $0.06
    Q2 FY26

    Offset to adjusted EPS increase.

    Favorable Foreign Currency Translation Effect on EPS
    $0.05
    Q2 FY26

    Included in the various EPS drivers.

    Gross Margin
    43.8%down 210 bps compared to 45.9% in Q2 FY25
    Q2 FY26

    Gross margin performance.

    Intangible Amortization Expense (excluded from Adj EPS)
    $2.17
    FY26

    Excluded from full-year adjusted EPS guidance.

    Acquisition-related Costs (excluded from Adj EPS)
    $0.48
    FY26

    Excluded from full-year adjusted EPS guidance.

    80/20 Program Implementation
    50% done
    Ongoing

    Program to refine processes specifically for Kadant businesses.

    Industry KPIs

    3
    MetricValueDetails
    Tariff cost impactbenefit from tariff refund
    Parts aftermarket business$214.2 millionUSD
    Order backlog order intake by segment$312 millionUSD

    Orderbook & backlog

    1
    Equipment Backlog$182 millionQ2 FY26

    large capital orders coming in now would likely be revenue for '27

    Deals & partnerships

    3
    Kadant ProfeelLongtime supplier to several Kadant businesses, with approximately 50% of its revenue now intercompany.

    The associated profit generated on intercompany activity is recognized in Kadant results, but timing depends on when underlying product is sold to third-party customer.

    ClydeLarger transaction.

    Contributed to strong performance in Industrial Processing segment.

    Unnamed fiber processing companySmaller acquisition, a technology buy to fit into Kadant's upcycling system, supplying a product into fiber processing systems.

    Orders are soft in this area currently, but good opportunities are seen for H2 FY26 and early FY27.

    Risks & headwinds

    4
    Continued softness in global capital equipment marketsOngoing, expected to strengthen in H2 FY26 and into 2027.

    Prolonged period of softness, impacting project timing.

    Mitigation: Diversified business model, strong aftermarket business, operational execution, growing backlog.

    Geopolitical uncertainties and trade policy uncertaintyOngoing.

    Leads to customer caution, delayed project releases, and extended approval cycles.

    Mitigation: Business model resilience, strong execution.

    Negative impact from amortization of acquired profit and inventory and deferred profit associated with Kadant Profeel acquisitionExpected to take the remainder of FY26 to work through remaining acquisition date inventory.

    Impacted gross margin.

    Mitigation: Inventory consumption over time.

    Lower gross margin percentage due to higher capital mix and product mixQ2 FY26.

    Gross margin down 210 basis points to 43.8% in Q2 FY26.

    Mitigation: Focus on operational leverage and cost discipline.

    What to watch in Q3 FY26

    5

    Capital spending trends

    H2 FY26
    CurrentSoft, delayed projects
    TargetStrengthening demand, projects gaining momentum

    Why it matters

    Indicates recovery in a key revenue driver for the company.

    Looking ahead to the second half of 2026, we believe demand will strengthen relative to the first half of the year and the softness in global capital spending will begin to strengthen.

    Q&A highlights

    5

    Can you provide more color on the pockets of strength driving the 'several large projects getting close to the finish line' comment, and how this compares to last year?

    Jeff Powell highlighted strength in packaging, aerospace, and OSB sectors, noting that large projects are spread across most businesses. He emphasized that the capital equipment investment recession 'can't last forever' and projects are now moving forward as customers can no longer delay investments, indicating a stronger environment and pipeline than last year.

    “It's clear that some of these things are starting to move forward, where I think the customer could no longer put off the investments in them.”

    asked by Ross Sparenblek · answered by Jeffrey Powell

    2 min read5 chapters

    Detailed Narrative

    01

    Strong Q2 Performance Amidst Headwinds

    Kadant reported record Q2 FY26 revenue of $313 million, up 23% year-over-year, with organic revenue growth of 8%. Adjusted EBITDA reached a record $68 million, a 30% increase, and adjusted EPS was a record $3.42, up 26%. This performance was achieved despite continued softness in global capital equipment markets and geopolitical uncertainties, which led to delayed customer approval cycles and project releases.

    02

    Aftermarket Business Resilience

    The aftermarket business demonstrated strong performance across all operating segments, contributing to healthy quote activity and commercial engagement. Aftermarket parts revenue was a record $214.2 million, though its mix decreased to 68% of total revenue from 71% in Q2 FY25, impacting gross margin. This resilience highlights the stability provided by Kadant's large installed base and recurring revenue streams.

    03

    Capital Project Outlook and Pipeline

    While capital project activity has been soft, management noted that multiple large projects are in advanced stages, with expectations for improving capital spending trends in H2 FY26 and into FY27. Organic capital revenue increased 23% in Q2 FY26, indicating some pickup. The company believes demand is deferred rather than lost, with a growing capital project pipeline.

    04

    Acquisition Performance and Integration

    Recent acquisitions contributed significantly to growth, particularly in the Industrial Processing segment, where new orders were up 29% to $136 million. The larger Clyde acquisition is performing well, while the Profeel acquisition is off to a good start despite a temporary profit deferral issue due to inventory consumption. A smaller fiber processing acquisition faces short-term challenges due to lower demand in that specific area.

    05

    Operational Efficiency and Cost Discipline

    Kadant maintained strong operational execution and cost discipline, with SG&A expenses decreasing to 26.1% of revenue from 29% in the prior year. This efficiency, combined with operational leverage from acquisitions, contributed to improved margin performance and overall profitability, despite a lower gross margin percentage due to product mix.

    AI-generated summary of the company’s earnings call. Not investment advice.